By  E. W. Lang

July Class III Futures spent most of the week over $25.00 per cwt. This $25 level has been reached for a day or a few days each during March, April, May and now June. July Class IV was over $26.00 for the last four days, a contract high. Butter poked through an all-time record $3 per lb. for a couple days then retreated to $2.97 per lb. Block and Barrel cheese moved not enough to justify their own existence on the CME this week, both hovering near the $2.25 per lb. level, for the duration.

Class III Milk-Feed Indices for July, August and September average $11.88 per cwt., that’s off 36 cents for the week. Corn is up, beans are up, wheat is up, and margins on milk production are down a little.

A dairy showing significant milk income over feed cost is likely not figuring home grown hay, corn and corn silage at current market value. Doing so is fine, but when you talk to your lender about margins on your dairy, mention that you have figured home grown feeds at their cost of production rather than market value, lest he or she think you an idiot or at least somewhat of a credit risk.

Remember always that accountants, medical doctors, lawyers, preachers and lenders always know when you’re lying, or worse yet lying by omission. The most abrupt and costly retribution, however, will be from your banker, as the other professionals view false witness as a component of their trade, not as a financial risk.

The Turlock, California, Dairy Video Sale a week ago had Holstein and Jersey Fresh cows by the pot at $2265 and 2260 per head. This was steady with a month earlier on the Holsteins but $500 per head more on the Jersey fresh cows sold in May. In April, Holstein fresh cows were $1900, and Jersey fresh cows averaged $1715 per head.

One exceptional cow, plus several of her gestating offspring and their recipient dams, sold for a one lot total of $1,925,000 this week. Obviously, there was significant type conformation and genetic value in the breeding package. I’m thinking it would be possible to max out Section 179 on the package, then take an ordinary loss on each recipient dam when she is sold at auction and still have ownership of the genetically superior calf.

Bear in mind here that I am not a Juris Doctor, a Certified Public Accountant, nor was I even a good student. I do, however, understand the probabilities of audit by the IRS and the degree to which some things can be defended during an audit when it’s a close call. And as I see it, this would be a perfectly legitimate tax treatment of this kind of investment for anyone who has been in the registered livestock business for two or more years. Again, I’m not a tax guy and this is idle speculation, offered for consideration and likely ridicule from one or more corners.

I do remember the dollar value to top end registered Holsteins that outside investors generated in the 1970’s and early 1980s, often in the pursuit of purple banners. The 1985 tax reformation act really took the steam out of Holstein investor activity, though it was exceptionally fair and good law, in my opinion. We have President Reagan and Chairman Dan Rostenkowski of Illinois to thank for that legislation, as the following years were good ones, on the farm and off.

Subsequent administrations bastardized the 1985 tax code, often to the benefit of the accounting industry and not for the benefit of taxpayers. It’s also unfortunate that C. Rostenkowski had to spend time in the pokey for something else he allegedly did, but he did represent Chicago, so that was part of the Congressman's culture.

At any rate, the $1.9M cow package was an interesting transaction that was purchased by seasoned Holstein people who may or may not profit from their acquisition. They face the same risks that all of us do, whenever we pay more than milk-cow value for any dairy female.